Smart Grid

[ GWh of Electricity Saved: ]

17.3K

[ Jobs Impact: ]

Low

Medium

High

[ Budget Impact: ]

Low

Medium

High

[ Conventional Pollutants Reduced: ]

SO2

2,277 tons

NOx

1,880 tons

Hg

.031 tons

PM

349 tons

[ Megatons of GHG Reduced: ]

16.7

Overview

There are few pieces of infrastructure that are more critical to the economy and daily life than the electric grid. However, it is surprisingly difficult to gather real-time information on its operations and control the flow of electricity.1 That’s because the Information Technology revolution has largely skipped over the electrical grid, leaving it inefficient and vulnerable to power interruptions. Utilities have done a remarkably good job providing reliable power over the grid, considering that it still relies heavily on 1960s-era technology.2 But a modernized grid could greatly improve America’s electricity system, making it more reliable, clean,3 and efficient.4

Analysis

The technologies involved in modernizing the grid, generally referred to as “smart grid”, add new information gathering and control mechanisms to all parts of the electricity system, from generation all the way down to consumer appliances. Depending on the goals of a state or utility, smart grid infrastructure may range from smart meters to remote fault detection5 to smart appliances that can be scheduled for off-peak demand hours. As utilities are beginning to invest in smart grid infrastructure, it is critical to make efficiency a priority in order to maximize the benefits to consumers and the environment from those investments.

One of the key advantages of smart grid is its ability to increase energy efficiency. Instead of requiring consumers to change their behaviors to reduce energy use, smart grid delivers the same services that customers are used to, but does it much more efficiently. And if consumers want to take additional steps to lower their bills, smart grid can help them identify ways to reduce waste, like turning off lights or the air conditioner while not at home. Another potential capability of smart grid technology is demand response, which allows consumers to choose when to operate appliances based on real-time price. In the future, it may be used to help consumers shift their energy consumption to the times when electricity is cheapest and provided by the generation cleanest sources, such as during peak wind times.6

Some utilities have begun to invest in smart grid technologies in order to complete repairs more quickly, make the grid more robust and fault resistant, and lower maintenance and operation costs.7 There are many utilities that, in cooperation with state public utility commissions (PUCs), are making great strides toward efficiency.8 However, without support from PUCs, utilities do not engage in efficiency-boosting programs, because they lower customers’ utility bills and undermine profits.9 Some states have recognized the importance of efficiency and have implemented programs to compensate utilities for revenue losses when they adopt efficiency programs, but many have not.10 Without action, it will be inefficient business-as-usual for utilities in these states.

Implementation

To overcome obstacles and encourage smart grid infrastructure deployment by utilities, government could take several actions to increase grid resilience and encourage efficiency.

Create a Race to the Top for Grid Resilience

Similar to the L Prize11 that successfully encouraged private companies to develop more efficient lighting, Congress should create a monetary prize that rewards utilities that best use technology to create a stable grid. Smart grid technology can be used to prevent outages, but it comes at some expense. By creating a small but effective monetary prize,12 utilities would be able to recoup some of these expenses only if they reduced downtime and improved services to customers through technology use.

Require Demand Response in Regional Markets

The Federal Energy Regulatory Commission (FERC) oversees and regulates regional electricity markets.13 Currently, some regional electricity markets allow for reduction in demand in place of additional generation, but this varies by market. FERC should require that all regional electricity markets permit demand curtailment as a substitute for generation and fairly reward utilities for this capacity as it would for adding generation. If utilities are compensated for demand response, they can see a return on the costs of advanced infrastructure as well as have aligned incentives for promoting efficiency at peak hours, when dirtier, older plants are often used instead.

Establish Smart Device Standards

To achieve widespread adoption, demand response must be viable not only for large commercial users but for retail consumers as well. As smart appliances and smart meters become more common, DOE should establish an open standard14 so that these disparate devices can communicate. DOE should, in conjunction with industry experts, devise a set of standards that ensure all companies’ ability to participate in the smart grid but also protects consumers’ right to privacy and choice. These standards would encourage third parties to make devices and software compatible with demand response requirements and open up the 3.8 billion GWh retail electricity market to curtailment capabilities.15

Martin Kushler, Dan York, and Patti Witte, “Aligning Utility Interests with Energy Efficiency Objectives:
A Review of Recent Efforts at Decoupling and Performance Incentives,” American Council for an Energy-Efficient Economy, October 2006, p. 3. Accessed November 11, 2012. Available at: http://www.aceee.org/research-report/u061; See also “Gartner Says Energy Companies Need to do More to Educate Consumers on Energy Efficiency,” Press Release, Gartner, June 10, 2009. Accessed November 11, 2012. Available at: http://www.gartner.com/it/page.jsp?id=1013212.

United States, Department of Energy, L Prize, “DOE Announces Philips as First Winner of the L Prize Competition,” press release, August 3, 2011. Accessed June 26, 2012. Available at: http://www.lightingprize.org.

The largest U.S. utility, PG&E, reported total net income of less than $1B for the previous 4 reported quarters, a performance prize of $10M would add 1% of pure profit. Other, smaller utilities would see a larger effect.

Implementation

How to Use the PowerBook

The PowerBook is a menu of á la carte options, not a blueprint that requires every element to hold it together. It is designed to provide federal policymakers and regulators with a selection of policy ideas to help solve specific challenges in how our nation produces, transports, and consumes energy.

SECTORS

The PowerBook is divided into five economic sectors: power, transmission, buildings and efficiency, industry, and transportation. Each sector includes multiple components, which are specific elements of that sector that require some policy change. Components that impact multiple sectors, such as clean energy finance or regulatory reform, are included in a sixth cross-sector section.

COMPONENTS

Each component has three parts: a short overview, an analysis of the challenges and opportunities for energy, employment, and the environment, and an implementation section that outlines specific actions that Congress, the administration, or the independent regulatory agencies can take. The policy recommendations in the implementation section are intended to serve as frameworks for more detailed legislation or regulatory reform proposals.

The components in the PowerBook reflect the input from a broad group of business leaders, policymakers, analysts, and academics. We will update them regularly to add new policy ideas, revise existing proposals, and reflect progress made in Congress or through the regulatory process. We invite readers to provide us suggestions to build upon the proposals in our components or new policies we should consider adding. Please send us your comments via the contact page.

OUR ANALYSIS

The PowerBook provides both pragmatic ideas to move America toward cleaner energy and data showing the potential impacts that these policies could have on our energy systems and economy. By combining several datasets, from economy-wide to industry-specific, we have developed a basic methodology for each component to estimate the effects these policies would have on CO2, conventional pollutants, and domestic energy needs. While future, independent modeling will provide higher accuracy, the current metrics offer a general barometer of impact and a way to compare the effects of various components.